Tagged: claims, defence, errors & omissions, freight forwarders, General Average, liability insurance, marine insurance

Written by FP Marine Risks and first published in HeavyLift Magazine, July 2011

When it comes to insurance, we only tend to find out the inadequacies of our cover when we make a claim.

For example, when we purchase car insurance we may perhaps choose the cheapest option, but when we have to make a claim, we might face a staggeringly high excess, no courtesy car to keep us on the move, and no legal fees cover for when the other driver tries to take us to court.  The costs mount up, and that’s with insurance.

So too with liability insurance for freight forwarders.  Prudent freight forwarders already appreciate the importance of purchasing liability insurance for their business. They are already aware of the financial strain they could face if they are liable for another party’s loss.  What that freight forwarder might not be aware of is how inadequate their liability insurance is, until it is too late.

So here are some tips to ensure your liability insurance will protect you when you need it:

• Make sure you purchase marine liability insurance – general non-marine liability insurance does not provide cover for international forwarders, but is often purchased in the mistaken belief that it does. 

• Ensure you have full liability protection to cover all of your forwarding operations. Some forwarders only request cover for their house bills of lading, but if you work in customs broking, warehousing or distribution, then the liability exposures for these need to be covered as well.

• Check that your insurance covers you for Errors & Omissions and Legal Liability – all freight forwarders have a contractual liability for a loss, regardless of who is responsible.

• If you trade internationally, check that you have adequate limits of liability, particularly for Errors & Omissions claims. Being sued and found liable in a Californian court can be expensive.

• Defending an action brought against you, even if you were not at fault, can be time consuming and costly so ensure that your cover includes Defence, either “ground-up” or “first dollar” if possible (so that you do not have to pay a deductible or excess).

• Make sure that General Average and Salvage Charges are included as these types of claims can fall back onto the forwarder.

• Utilise your own “Conditions of Trade” to limit your company’s liability in your day-to-day business where no standard limitations of liability are employed (such as FIATA or COGSA), and make sure that you refer to them on your company website, letterhead paper and invoices. Get your insurer to view and approve these before the inception of your liability insurance contract, and if you make any changes to the conditions or your limits of liability, you must get prior approval from your insurer.

• Never accept liability without first speaking to your insurer.

There are also ways to avoid losses, which we encourage all freight forwarders to consider:

• Never agree to release containers or cargo without the production of the original Bill of Lading, no matter how well you know your customer or how long you have done business with them.

• Always keep original Bills of Lading in a secure place and ideally separate some of them so that if there is a fire, for example, you will not lose all of the originals.

• To lower the chances of a customer seeking compensation from you for loss or damage to their cargo, always encourage them to purchase cargo insurance.

The best advice we can give to freight forwarders is to use the services of a specialist marine insurance broker.  They will be able to find you the most competitive deal available, whilst ensuring that the cover is tailored according to your company’s needs.  An experienced marine insurance broker can make sure that the insuring conditions under your freight services liability insurance are wide enough to protect your company against the liabilities you face and that the insuring premium is competitive for that level of cover.

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